Dubai, the credit-crunched Gulf playground, has shattered hopes of imminent
financial recovery by asking for a six-month "standstill" on major
parts of its debt.

Dubai World, one of the emirate's main state holding companies, said it was asking for a delay on maturities until at least May 30. It has $60bn (£35.9bn) in declared liabilities and one of its subsidiaries, the "palm island" developer Nakheel, is due a $3.52bn Islamic bond repayment, plus charges, on December 14.

The company also unveiled a restructuring programme, to be headed by Aidan Birkett, Deloitte's managing partner for corporate finance.

Dubai World's major asset is DP World, the ports operator which bought Britain's P&O. Questions will be asked whether a stake in DP World or other successful Dubai entities like Emirates Airlines might ultimately have to be sold to raise cash.

The government's statement was released after close of business in Dubai, and on the eve of a public holiday. Markets will not reopen until next week.

It came after bond prices had risen on expectations of full repayment. Earlier in the day, Dubai's government announced it had raised a $5bn bond for its Financial Support Fund from government-owned banks in neighbouring Abu Dhabi.

Dubai was among the most dramatic victims of the credit crunch, with property prices halving from their highs in September 2008, leaving a huge overhang of debt.

Much of it was in the hands of government-owned companies, with Nakheel, which has been forced to slow work on show-piece developments like its artificial island chain The World, among the most prominent.

Its December Islamic bond, or sukuk, is regarded as the emirate's "bellwether" debt. Its price rose from a low of 63 cents on the dollar to 110 cents as no news on default was seen as good news.

The government's statement made no mention of default but left other questions unanswered. "The Dubai Financial Support Fund, working with the chief restructuring officer, will start to assess and evaluate the extent of the restructuring required," it said. "As a first step, Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least May 30."

The latest news follows last week's replacement of the boss of its International Finance Centre and three royal advisers. They included the chairman of Dubai World, Sultan bin Sulayem, who was sacked from the board of the holding company which oversees Emirates Airlines and Emirates NBD, a bank.